However, recent events have given us enough reason to start re-examining this assumption. We have been watching the United States’ tariff tamasha for almost a year now but the worst of it appeared to have died down with the Iran war. Last week, something much stranger happened: trade talks between the US and its closest ally, Canada, broke down in great acrimony and the US imposed immediate tariffs of 50% on a large basket of goods from Canada. Canada retaliated with equivalent tariffs. As per a statement by Canadian Prime Minister Mark Carney, what caused the final breakdown was an American attempt to restrict Canada’s freedom to negotiate trade deals with other nations without America’s approval. Carney said that it was a question of sovereignty and when he was asked why he sounded as if it was a war situation, he replied that Canada had been attacked. Tell me, are these words that sound like a PM referring to a close ally?
An unprecedented volatility
However, you must be wondering what all this geopolitical drama has to do with your personal investments. The point I’m making is not obvious but subtle. It has to do not with actions, but with a shift in attitude. As investors, we have been trained to hate volatility and what we are seeing is a volatility in behaviour that is unprecedented. And since this is about the US, the problem is even more acute. The usual answer to there being a potential problem in any one country is always to spread investments more evenly across many countries. However, when it comes to the US, ‘geographical diversification’ is not a solution but just a slogan. The US market is so large a part of the world’s listed capitalisation and so full of dominant, high-growth companies that any sensible global portfolio is by, definition, a heavily American one. You cannot avoid the US without making your global portfolio meaningless. There is no alternative.
Know that I’m not asking you to abandon international investing—I’m not even close to reversing my stand. My goal is just to record an uneasiness that I haven’t felt earlier and to do so openly so that my readers know my views now stand on a slightly less sure foundation. The freezing of the Russian Central Bank’s reserves during the Ukraine war could have been justified from a certain point of view but the years after that have shown us the direction.
Once a country begins to treat access to its markets, its currency and its financial system as instruments of pressure, used first against adversaries and then against allies when it suits, then the logic will get applied to more and more cases. Just as I’m writing this page, news has come of an expanded $100,000 fee on H1B visas which will be applicable to even existing holders. The fact is that the US has become addicted to coercion through economic measures and not only will this habit be hard to break, it will expand to more and more areas.
There is no neat and obvious way to manage this risk. We sent our money abroad in the belief that the destination was safe from such problems but now we should stop believing that without thinking.
The Author is CEO, Value Research
